Bad Brokers

According to FINRA, Stefan Andrew Spath was assessed a deferred fine of $15,000 and suspended from association with any FINRA member in all capacities for 20 months for multiple serious violations.

Spath intentionally made material misrepresentations and omitted material information in communicat...

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According to FINRA, Stefan Andrew Spath was assessed a deferred fine of $15,000 and suspended from association with any FINRA member in all capacities for 20 months for multiple serious violations.

Spath intentionally made material misrepresentations and omitted material information in communications with issuers about Form 211 applications required to initiate or resume quotations. In these emails, Spath typically misrepresented or gave the misleading impression that he had filed a Form 211 with FINRA or responded to FINRA information requests when he had not done so. This information was material to issuers because the Form 211 process determined whether his firm could initiate quotations for their securities and whether they could apply for admission to over-the-counter markets.

Spath also provided false and misleading responses to FINRA requests for information supporting certain Forms 211. His responses were false regarding how and when the firm first became aware of issuers and whether all relevant emails were attached to responses.

Additionally, Spath engaged in an undisclosed outside business activity by assisting a friend with securing short-term loans from investors to finance a cattle and olive farm. Spath introduced five investors (none of whom were firm customers) to the farm owner, and loan agreements totaling $450,000 were executed. As compensation for these referrals, Spath received approximately $74,000. He did not provide prior written notice to the firm about his involvement with the farm or that he received compensation for referrals.

Spath also submitted two compliance questionnaires to the firm in which he falsely attested he had not participated in undisclosed outside business activities. This case demonstrates serious misconduct involving misrepresentations to both issuers and regulators, coupled with undisclosed outside activities and false attestations. The 20-month suspension reflects the severity and repeated nature of the violations.

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According to FINRA, Jacob Harrison Leddy was fined $5,000 and suspended for 10 business days in all capacities for improperly removing and retaining customer non-public personal information without his member firm's or the customers' consent.

In anticipation of joining another FINRA member firm, ...

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According to FINRA, Jacob Harrison Leddy was fined $5,000 and suspended for 10 business days in all capacities for improperly removing and retaining customer non-public personal information without his member firm's or the customers' consent.

In anticipation of joining another FINRA member firm, Leddy improperly removed customers' non-public personal information from his firm by taking photographs of account information contained within the firm's electronic systems. The photographs captured sensitive customer information including customer names, dates of birth, account numbers, and social security numbers.

Following Leddy's resignation from the firm, he improperly retained this customer information. The information was later secured by the new firm through which Leddy had become registered, and Leddy returned the customers' non-public personal information to his former firm prior to its use. However, the unauthorized removal and retention of such sensitive information violated customer privacy and firm policies.

Customer non-public personal information is highly sensitive and subject to strict privacy protections under Regulation S-P and other privacy laws. Firms are required to safeguard customer information and have policies restricting how such information can be accessed, used, and transported. Registered representatives are prohibited from removing customer information without authorization, particularly when transitioning between firms.

This case serves as a reminder that customer information belongs to the firm and customers, not to individual registered representatives. When changing firms, representatives must follow proper procedures for customer transitions and cannot simply take customer information with them. The relatively modest sanction reflects that Leddy returned the information before using it and that it was secured by his new firm. However, the conduct still warranted discipline as it violated important privacy protections.

Investors should be aware that their personal information is protected by privacy regulations and that unauthorized removal or use of such information by registered representatives is a violation subject to sanctions.

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According to FINRA, Michael Robert Neill was fined $5,000 and suspended for one month in all capacities for causing his member firm to maintain inaccurate books and records by changing representative codes for trades.

Neill entered into an agreement to service certain customer accounts, including...

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According to FINRA, Michael Robert Neill was fined $5,000 and suspended for one month in all capacities for causing his member firm to maintain inaccurate books and records by changing representative codes for trades.

Neill entered into an agreement to service certain customer accounts, including executing trades, under a joint representative code he shared with the estate of a retired representative. The agreement specified what percentages of commissions the estate and Neill would earn on trades placed using the joint representative code.

When Neill placed trades in accounts covered by the agreement, the firm's system correctly prepopulated trades with the applicable joint representative code. However, Neill changed the code to his personal representative code because he mistakenly believed his agreement with the estate did not apply to new assets added to covered accounts. He thought he was authorized to enter trades using his personal code for these new assets.

Neill's actions resulted in trade confirmations inaccurately reflecting his personal representative code rather than the joint code required by the agreement. This caused Neill to receive higher commissions from the trades than he was entitled to receive under the agreement. The firm subsequently reimbursed the estate of the retired representative.

This case illustrates the importance of accurate books and records for broker-dealers. Trade confirmations must accurately reflect the representative of record for transactions. When representatives have commission-sharing arrangements, it is essential that trades are properly coded to ensure accurate commission splits and recordkeeping.

While Neill's violation appears to have resulted from a mistaken belief about the scope of his agreement rather than intentional misconduct, he was still responsible for ensuring trades were properly coded. The case serves as a reminder that registered representatives must maintain accurate records and cannot unilaterally modify system-generated codes, even if they believe their interpretation of an agreement differs from what the system reflects. When questions arise about agreements, representatives should seek clarification rather than making unauthorized changes.

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According to FINRA, Rush Flowers Harding III was assessed a deferred fine of $30,000 and suspended from association with any FINRA member in all capacities for one year for willfully violating MSRB Rules G-18(b) and G-17.

Harding's member firm had agreed with its bank affiliate not to sell the af...

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According to FINRA, Rush Flowers Harding III was assessed a deferred fine of $30,000 and suspended from association with any FINRA member in all capacities for one year for willfully violating MSRB Rules G-18(b) and G-17.

Harding's member firm had agreed with its bank affiliate not to sell the affiliate secondary market municipal bonds with a markup due to the affiliate's banking regulators prohibiting such markups. Harding contravened this arrangement and circumvented the firm's prohibition against markups to the affiliate by indirectly selling bonds with markups to the affiliate using third-party broker-dealers as intermediaries.

Harding offered marked-up bonds anonymously through a broker's broker, then informed another broker-dealer that the bonds were available and of potential interest to his firm's affiliate. The other broker-dealer purchased the bonds and sold them, with an additional markup, to the firm's affiliate. In total, the affiliate paid $918,476 in aggregate markups and fees to the firm and third-party broker-dealers that it would not have paid had Harding sold the bonds directly in the agreed-upon manner.

After discovering the transactions, the firm permitted Harding to resign and reimbursed its affiliate $918,476, obtaining contribution from Harding for a portion of that amount. The conduct violated MSRB rules governing fair pricing and dealing in municipal securities.

This case demonstrates serious misconduct involving deliberate circumvention of firm policies designed to manage conflicts of interest and comply with regulatory requirements. By interposing third-party broker-dealers to disguise markups that were prohibited under the firm's arrangement with its affiliate, Harding violated his obligations to deal fairly and honestly in municipal securities transactions. Municipal bond investors should understand that MSRB rules govern fair pricing, and that interpositioning arrangements that serve no legitimate economic purpose except to generate additional costs violate these rules.

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According to FINRA, Bryan Sproul was assessed a deferred fine of $5,000 and suspended for one month in all capacities for borrowing $14,000 from a customer without notice to or approval from his member firm.

Sproul borrowed money from a customer who was also his friend. While the personal friends...

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According to FINRA, Bryan Sproul was assessed a deferred fine of $5,000 and suspended for one month in all capacities for borrowing $14,000 from a customer without notice to or approval from his member firm.

Sproul borrowed money from a customer who was also his friend. While the personal friendship created some connection between Sproul and the borrower, FINRA rules require registered representatives to provide notice to their firms before borrowing money from customers, even when those customers are also friends or family members, unless the customer is an immediate family member or a financial institution in the business of lending.

The customer disclosed the loan to another firm representative, who reported it to the firm. When the firm confronted Sproul about the loan, the firm terminated his employment. Sproul subsequently repaid the loan with interest.

FINRA Rule 3240 prohibits registered persons from borrowing money from or lending money to customers unless certain conditions are met. These conditions include providing written notice to the firm and obtaining firm approval before entering into the lending arrangement, unless an exception applies. The rule is designed to prevent exploitation of customers and conflicts of interest that can arise from financial relationships between representatives and customers.

Even though Sproul eventually repaid the loan with interest and the customer was a friend, the borrowing violated firm notification and approval requirements. The rule exists because personal financial relationships between registered representatives and customers can create conflicts of interest and potentially influence the representative's advice and recommendations.

This case serves as a reminder that registered representatives must follow firm policies and regulatory requirements regarding borrowing from customers, even when the customer is a friend. The relatively modest sanctions reflect that Sproul repaid the loan with interest, but investors should be aware that borrowing and lending arrangements between representatives and customers are subject to strict regulatory requirements designed to protect customers from exploitation.

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According to FINRA, Brian Edward Reilly was fined $5,000 and suspended for 20 days in all capacities for misrepresenting on a telephone call that he was his customer and providing false information to his member firm.

Reilly's customer wanted to surrender her variable annuity. Reilly placed three...

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According to FINRA, Brian Edward Reilly was fined $5,000 and suspended for 20 days in all capacities for misrepresenting on a telephone call that he was his customer and providing false information to his member firm.

Reilly's customer wanted to surrender her variable annuity. Reilly placed three calls to the annuity provider to request a blank annuity surrender form. In the first call, Reilly and the customer participated in a three-way call with the provider but were unable to reach the correct department. Later that day, Reilly called again without the customer present. On this second call, Reilly identified himself as the customer and provided the customer's date of birth, social security number, and beneficiary information to convince the provider he was the customer. He then asked the provider to send a blank surrender form to the customer's email address. The provider ended the call and did not send the form.

Reilly then called a third time with the customer on the line to request the surrender form. The annuity provider alerted Reilly's firm about his misrepresentation during the second call. When the firm confronted Reilly during its internal review, he denied misrepresenting himself as the customer, thereby providing false and misleading information to the firm.

Impersonating a customer is a serious violation that undermines the integrity of customer identity verification procedures designed to protect against unauthorized access to account information and transactions. Even though Reilly's stated purpose was merely to obtain a blank form and he had the customer's apparent authorization to assist with the surrender, the impersonation was improper and violated customer privacy protections.

Reilly's subsequent false denial to his firm compounded the misconduct by obstructing the firm's internal investigation. This case demonstrates that registered representatives must act with honesty and integrity in all dealings, including with third-party service providers and in responding to firm inquiries, even when trying to help customers with seemingly routine administrative matters.

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According to FINRA, Thomas John Tedeschi was assessed a deferred fine of $5,000 and suspended for three months in all capacities for failing to amend his Form U4 to disclose felony charges.

Tedeschi was arrested and charged in Nassau County, New York with Criminal Sale of a Controlled Substance i...

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According to FINRA, Thomas John Tedeschi was assessed a deferred fine of $5,000 and suspended for three months in all capacities for failing to amend his Form U4 to disclose felony charges.

Tedeschi was arrested and charged in Nassau County, New York with Criminal Sale of a Controlled Substance in the Third Degree and Criminal Possession of a Controlled Substance in the Third Degree, both Class B felonies. While Tedeschi ultimately pled guilty to a reduced misdemeanor charge of criminal possession of a controlled substance, he was aware he had been initially charged with two felonies and discussed the charges with supervisors at his member firm.

Despite this knowledge and despite discussing the charges with firm supervisors, Tedeschi did not timely amend his Form U4 to disclose the felony charges as required. In fact, Tedeschi never disclosed the felony charges on his Form U4 prior to his resignation from the firm.

Form U4 is the Uniform Application for Securities Industry Registration and requires registered persons to disclose certain criminal charges, including felony charges, typically within 30 days. These disclosure requirements exist to ensure transparency about the backgrounds of registered persons and to provide regulators and firms with information needed to assess whether individuals pose risks to investors.

The failure to disclose criminal charges is a serious violation because it deprives regulators, firms, and the public of material information about a registered person's background. Even though the charges were ultimately resolved with a misdemeanor plea, the initial felony charges were required to be disclosed when they occurred.

This case demonstrates the importance of complete and timely disclosure on Form U4. Investors rely on BrokerCheck, which draws information from Form U4, to research the backgrounds of financial professionals. Registered representatives have an obligation to keep their Form U4 information current and accurate, and failures to disclose criminal charges undermine investor protection and transparency in the industry.

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According to FINRA, Mark Allen Brewer was fined $5,000 and suspended for 45 days in all capacities for asking a customer to designate his friend as beneficiary of her accounts in a scheme to circumvent firm policy.

After the customer's spouse passed away, she informed Brewer, whom she considered ...

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According to FINRA, Mark Allen Brewer was fined $5,000 and suspended for 45 days in all capacities for asking a customer to designate his friend as beneficiary of her accounts in a scheme to circumvent firm policy.

After the customer's spouse passed away, she informed Brewer, whom she considered a friend, that she wanted to designate him as beneficiary of her accounts. Brewer requested firm approval to be named beneficiary, but the firm denied the request because firm policy prohibits representatives from being named as beneficiaries of customer accounts unless the customer is an immediate family member.

When the customer again expressed her wish to name Brewer as beneficiary, he declined. However, after discussing other options, Brewer suggested the customer submit applications changing her beneficiary designations to an individual who was Brewer's family friend but who had no connection to or relationship with the customer whatsoever. The customer agreed and Brewer submitted the requests to the firm.

Brewer did not disclose to the firm that the individual the customer named as beneficiary was Brewer's friend with no connection to the customer. The firm approved the beneficiary change requests based on the lack of disclosed connection between Brewer and the new beneficiary. The customer later removed Brewer's friend as beneficiary after the firm contacted her about the designation.

This conduct violated principles of just and equitable trade and firm policies designed to prevent exploitation of customers. The beneficiary designation policy exists to protect vulnerable customers from being improperly influenced by their registered representatives to name them or their associates as beneficiaries. By suggesting his friend as beneficiary and not disclosing their relationship to the firm, Brewer attempted to circumvent these investor protections.

Investors should be cautious about beneficiary designations that involve their financial advisors or people suggested by their advisors. While customers have the right to name anyone as beneficiary, they should independently consider whether such designations align with their estate planning goals and family circumstances.

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According to FINRA, Lizbeth Saavedra was suspended for 60 days in all capacities for participating in a private securities transaction and engaging in outside business activities without providing required notice to her member firm. No monetary sanction was imposed in light of Saavedra's financial s...

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According to FINRA, Lizbeth Saavedra was suspended for 60 days in all capacities for participating in a private securities transaction and engaging in outside business activities without providing required notice to her member firm. No monetary sanction was imposed in light of Saavedra's financial status.

Saavedra entered into a merchant cash advance agreement with a company, receiving monthly payments of $800 in return for her $8,000 investment. This investment constituted a security, and because Saavedra did not make the investment through her firm and did not provide written notice before signing the agreement, she participated in an unapproved private securities transaction. She also falsely attested on the firm's annual compliance questionnaire that she had not participated in any unapproved private securities transactions.

Additionally, Saavedra engaged in two undisclosed outside business activities. She worked as an administrative assistant for representatives of, and later directly for, the merchant cash advance company, earning approximately $30,000 in compensation. She did not disclose this work to her firm until over six months after starting. Saavedra also created and registered a limited liability company, filed a corporate amendment naming herself as manager, and opened a business bank account in its name, but never disclosed the LLC to the firm. She also falsely attested on an annual compliance questionnaire that she had not engaged in undisclosed outside business activities.

FINRA rules require registered representatives to provide written notice to their firms before participating in private securities transactions and before engaging in outside business activities. These requirements enable firms to supervise representatives' activities, identify potential conflicts of interest, and ensure compliance with securities laws.

This case demonstrates the importance of disclosure and firm approval for activities outside a representative's employment with their member firm. Even activities that seem unrelated to securities, like working for a merchant cash advance company, must be disclosed to enable proper supervision.

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According to FINRA, Matthew Eric Platnico was fined $10,000 and suspended for nine months in all capacities for engaging in unauthorized and unsuitable trading in a customer account. Platnico was not required to pay restitution because the customer settled an arbitration claim with his member firm r...

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According to FINRA, Matthew Eric Platnico was fined $10,000 and suspended for nine months in all capacities for engaging in unauthorized and unsuitable trading in a customer account. Platnico was not required to pay restitution because the customer settled an arbitration claim with his member firm related to this conduct.

Platnico recommended a high-risk options trading strategy in a joint account held by a customer and her late husband. He communicated regularly with the customer's husband about the strategy. After the husband's death, Platnico spoke with the customer by telephone once but continued executing the trading strategy in the account without contacting the customer before placing options transactions and without having discretionary trading authority.

Although Platnico occasionally called the customer's son to discuss the options strategy, he never obtained written trading authorization from the customer for her son to direct trading in the account. Moreover, Platnico did not conduct reasonable diligence to confirm the options strategy continued to be suitable for the customer's investment profile after her husband's death.

The strategy was unsuitable given that it involved substantial risk of loss while the customer was retired, had limited investment knowledge and experience, and had only a moderate risk tolerance. Platnico placed at least 100 unsuitable and unauthorized options trades in the account, causing the customer to suffer substantial losses.

This case illustrates the critical importance of trading authorization and suitability obligations. When an account holder dies, registered representatives cannot simply continue trading strategies that were discussed with the deceased account holder. They must obtain proper authorization from the surviving account holder and reassess suitability based on that person's investment profile, knowledge, experience, and risk tolerance.

Options trading involves substantial risk and requires careful suitability analysis. Investors should understand the risks of options strategies and ensure their representatives have proper written authorization before placing trades. When family circumstances change, investment strategies should be reassessed to ensure continued appropriateness.

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